International Hardwood and Veneer Company of the Philippines vs. University of the Philippines

When the State cedes and transfers public forest land in full ownership to a government entity subject to an existing timber concession, the grantee acquires all rights of ownership—including the right to collect forest charges as royalties and to supervise logging operations within the ceded area—as the transfer removes the land from the public domain and terminates the jurisdiction of the Bureau of Forestry and Bureau of Internal Revenue over it. The existing concessionaire's right to cut and remove timber must be respected, but its correlative obligation to pay charges shifts from the Republic to the new owner.

Petitioner International Hardwood and Veneer Company of the Philippines ("Interwood") is a corporation engaged in the manufacture, processing, and exportation of plywood, holding a timber license (License Agreement No. 27-A, as amended) granted by the Philippine government to cut, collect, and remove timber from public forest land in the provinces of Quezon and Laguna. Respondent University of the Philippines ("UP") is a state university that, through Republic Act No. 3990, was ceded a 3,000-hectare parcel of public domain located in Paete, Laguna, in full ownership, to establish a central experiment station for its research and extension functions. The ceded area falls within Interwood's timber concession. Respondent Jose C. Campos, Jr. was UP's Business Executive who demanded that Interwood pay forest charges directly to UP and allow UP personnel to supervise and scale timber operations within the ceded area.

Petitioner International Hardwood and Veneer Company of the Philippines ("Interwood") was granted by the Philippine government, through the Secretary of Agriculture and Natural Resources, an exclusive timber license (License Agreement No. 27-A, as amended) effective for 25 years expiring on February 1, 1985, to cut, collect, and remove timber from public forest land located in the municipalities of Infanta, Mauban, and Sampaloc in Quezon, and Siniloan, Pangil, Paete, Cavite, and Calauan in Laguna. Interwood had been in continuous possession of the concession since June 4, 1953, constructing roads, improvements, and installations at a cost of more than ₱7,000,000.

On September 25, 1961, President Carlos P. Garcia issued Executive Proclamation No. 791, withdrawing from sale or settlement a parcel of public land of approximately 3,500 hectares, situated partly in Paete and Pakil, Laguna, and partly in Infanta, Quezon, and reserving it for the College of Agriculture of the University of the Philippines as an experiment station. The proclamation was expressly made subject to private rights, if any, and to the condition that the disposition of timber and other forest products found therein shall be subject to forestry laws and regulations. This reserved area fell within Interwood's timber concession.

On June 18, 1964, Congress enacted Republic Act No. 3990, establishing a central experiment station for UP's research and extension functions. Section 2 of the Act ceded and transferred the parcel of public domain described in Proclamation No. 791—consisting of three thousand hectares, more or less, located in Paete, Laguna—in full ownership to UP, subject to any existing concessions, if any. Section 3 exempted all operations and activities in the station from taxation and provided that any incidental receipts or income therefrom shall pertain to the general fund of UP. Notably, R.A. No. 3990 did not reproduce the condition in Proclamation No. 791 that the disposition of timber shall be subject to forestry laws and regulations.

Relying on R.A. No. 3990, UP, through its Business Executive Jose C. Campos, Jr., demanded that Interwood pay forest charges directly to UP instead of the Bureau of Internal Revenue, and that UP personnel be allowed to scale, measure, and seal timber cut within the ceded area. Interwood refused. UP then sought and obtained letter-rulings from the Commissioner of Internal Revenue and the Director of Forestry. The Commissioner of Internal Revenue ruled that the Paete Land Grant, having been ceded in full private ownership to UP, was to be considered a registered private woodland, and that forest charges purportedly payable by concessionaires were to be considered not as charges under the National Internal Revenue Code but as royalties for the exploitation of UP's timber resources. The Director of Forestry likewise ruled that scaling work could be turned over to UP's scalers. The Assistant Director of Forestry, however, had earlier expressed full accord with Interwood's position that UP had not acquired the rights it claimed.

Interwood filed the action for declaratory relief on June 28, 1966, seeking a declaration that UP had no right to supervise, scale, or collect forest charges within the ceded area. The parties submitted a Joint Stipulation of Facts and jointly submitted the case for judgment on two issues: (1) whether forest charges should be paid to the Bureau of Internal Revenue or to UP, and (2) if payable to UP, whether UP was entitled to supervise logging and scale timber within the area. The trial court ruled in favor of Interwood, holding that the cession was subject to the existing concession, that UP would acquire full ownership only after February 1, 1985, and that R.A. No. 3990 did not amend the provisions of the National Internal Revenue Code vesting collection of forest charges in the Bureau of Internal Revenue. Respondents appealed to the Court of Appeals, which elevated the case to the Supreme Court as presenting a pure question of law.

• No Authority Under R.A. No. 3990: Petitioner asserted that R.A. No. 3990 does not expressly or impliedly grant UP the authority to collect forest charges or to supervise the operations of its timber concession within the ceded area, invoking the rule that legislative grants must be construed strictly in favor of the public and most strongly against the grantee.
• Subjection to Existing Concession: Petitioner maintained that the cession in full ownership was expressly made "subject to any existing concessions," and that its concession would continue until February 1, 1985; UP would acquire full ownership and exclusive jurisdiction only after that date, likening UP's position to that of a donee of land subject to a usufruct.
• Invalid Agency Rulings: Petitioner argued that the rulings of the Commissioner of Internal Revenue and the Acting Director of the Bureau of Forestry recognizing UP's authority were patently incorrect, and that said agencies lacked the power to interpret the law, which is primarily a judicial function.
• Vested Right to Bureau Supervision: Petitioner claimed it had acquired a vested right to operate its timber concession under the supervision and control of the Bureau of Forestry.

• Collection Through UP Permissible: Respondents argued that under R.A. No. 3990, the Republic may effect collection of forest charges through UP because the License Agreement does not expressly provide that forest charges shall be paid to the Bureau of Internal Revenue; in the absence of a specific contractual provision limiting collection to a particular agency, the Republic may effect collection through another agency.
• Full Ownership Entails Full Control: Respondents contended that having been vested with administrative jurisdiction over and ownership of the tract, UP acquired full control and benefit of the timber and other resources within the area; to deny UP the forest charges (or royalties) would render its "full ownership" empty and futile.
• Entitlement to Income Under Section 3: Respondents invoked Section 3 of R.A. No. 3990, which provides that any incidental receipts or income from the central experiment station shall pertain to the general fund of UP, arguing that UP is clearly entitled to income derived from the ceded tract.
• Legislative Intent to Self-Finance: Respondents argued that since R.A. No. 3990 does not provide appropriations for the establishment and maintenance of the central experiment station, the legislative intent was that it be financed by earnings or income from the area, which could only come from timber and royalties or charges payable therefrom.
• Supervision Intended by the Law: Respondents asserted that supervision of the License Agreement by UP was intended by R.A. No. 3990, and that the two government agencies affected by the law had issued specific rulings recognizing UP's authority to collect royalties and supervise logging operations.

• Jurisdictional Defect: Whether the petition for declaratory relief with injunction should have been dismissed for jurisdictional defects.
• Authority to Collect Forest Charges: Whether R.A. No. 3990 empowers UP, in lieu of the Bureau of Internal Revenue, to collect forest charges due from petitioner for timber cut within the area ceded to UP.
• Authority to Supervise and Scale: Whether UP is entitled to supervise, through its duly appointed personnel, the logging, felling, and removal of timber within the ceded area and to scale the timber thus felled and cut.

• Jurisdictional Defect: No. The action for declaratory relief was properly before the trial court, the stipulation of facts and agreed issues satisfying all requisites for declaratory relief.
• Authority to Collect Forest Charges: Yes. The cession and transfer of the land in full ownership to UP effectively removed it from the public domain, divesting the Republic of all rights and title and terminating the Bureau of Internal Revenue's jurisdiction to collect forest charges; petitioner's correlative duty was to pay charges—now royalties—to UP as the new owner.
• Authority to Supervise and Scale: Yes. As absolute owner of the ceded area, UP is entitled to supervise, through its own personnel, the logging, felling, and removal of timber within the area covered by R.A. No. 3990.

• Jurisdictional Defect: The first assigned error was found without merit. The parties' Joint Stipulation of Facts jointly moved for judgment on two clearly defined legal issues—whether forest charges should be paid to the Bureau of Internal Revenue or to UP, and whether UP was entitled to supervise and scale timber operations. These issues brought the matter within the scope of an action for declaratory relief under Section 1, Rule 64 of the Rules of Court. The stipulation satisfied all four requisites for declaratory relief: (a) a justiciable controversy; (b) adverse interests between the parties; (c) a legal interest in the controversy on the part of the party seeking relief; and (d) an issue ripe for judicial determination. The objection that declaratory relief cannot be joined with injunction was deemed abandoned, as petitioner failed to raise it in the Stipulation of Facts, effectively amounting to an amendment of the pleadings under Section 5, Rule 10 of the Rules of Court.

• Authority to Collect Forest Charges: The second assigned error was found meritorious. R.A. No. 3990 ceded and transferred the property to UP in "full ownership," and the word "full" means entire, complete, or not wanting in any essential quality. By using this term, the law unequivocally evidenced an intent to transfer absolute ownership. The proviso "subject to any existing concessions" referred to petitioner's timber license and meant only that the licensee's right must not be affected, impaired, or diminished—it must be respected. However, all rights of the Republic as grantor of the license were effectively assigned, ceded, and conveyed to UP. Section 3 of R.A. No. 3990 further confirmed this by providing that any incidental receipts or income from the station shall pertain to UP's general fund. Because the land was effectively segregated from the public domain and converted into a registered private woodland, the authority and jurisdiction of the Bureau of Forestry and Bureau of Internal Revenue over it were terminated. This was evident from the fact that R.A. No. 3990 did not reproduce the condition in Proclamation No. 791 requiring the disposition of timber to be subject to forestry laws and regulations. Under the Civil Code, an owner has the right to enjoy and dispose of a thing without other limitations than those established by law, including the right to receive what the thing produces (jus utendi) and the right to consume it by use (jus abutendi). While the exception for the existing concession meant that petitioner retained the right to cut and remove timber until February 1, 1985, its correlative duty was to pay forest charges—now properly royalties—to the new owner, UP, at the same rate provided in the license agreement. Petitioner's argument that it had a vested right to operate under Bureau of Forestry supervision was rejected as preposterous, since the grantor was not bound to perpetuate the Bureau as its agent. The strict construction rule invoked by petitioner was held inapplicable, as the grant under R.A. No. 3990 was a transfer of absolute ownership leaving no room for strict interpretation against the grantee; it was the concession in favor of petitioner that should be bound by the rule.

• Authority to Supervise and Scale: It followed from the Court's ruling on the collection of forest charges that UP, as the absolute owner of the ceded area, was entitled to supervise, through its duly appointed personnel, the logging, felling, and removal of timber within the area covered by R.A. No. 3990. The termination of the Bureau of Forestry's jurisdiction over the area, by virtue of its removal from the public domain, necessarily vested in UP the corresponding authority to supervise operations within its own property.

• Full Ownership Transfer and Removal from Public Domain — When the State cedes and transfers public land in "full ownership" to a grantee, it completely removes the land from the public domain, divests itself of all rights and title, and conveys absolute ownership to the grantee. The use of the word "full" signifies entire, complete, or not wanting in any essential quality. In this case, the transfer terminated the jurisdiction of the Bureau of Forestry and Bureau of Internal Revenue over the ceded area, vesting in UP the rights of ownership including the collection of forest charges as royalties and the supervision of logging operations.

• Existing Concession as a Protected Private Right — A proviso in a legislative grant that the cession is "subject to any existing concessions" means only that the existing concessionaire's rights must not be affected, impaired, or diminished. The concessionaire retains the right to cut and remove timber for the duration of the license, but its correlative obligation to pay charges shifts to the new owner. The concessionaire's right is akin to a usufruct, while the grantee holds "naked" ownership that becomes full upon termination of the concession.

• Requisites for Declaratory Relief — An action for declaratory relief requires: (a) a justiciable controversy; (b) the controversy must be between persons whose interests are adverse; (c) the party seeking declaratory relief must have a legal interest in the controversy; and (d) the issue must be ripe for judicial determination. A justiciable controversy exists where an actual controversy or the ripening seeds of one exist between parties who are all sui juris and before the court, and the declaration sought will help end the controversy.

• Strict Construction of Legislative Grants Inapplicable to Transfer of Absolute Ownership — The rule that legislative grants must be construed strictly in favor of the public and most strongly against the grantee does not apply where the legislative grant is a transfer of absolute, full, and entire ownership. In such cases, there is no room for strict interpretation against the grantee; rather, it is the concession in favor of a private party that should be bound by the rule.

• "When it ceded and transferred the property to UP, the Republic of the Philippines completely removed it from the public domain and, more specifically, in respect to the areas covered by the timber license of petitioner, removed and segregated it from a public forest; it divested itself of its rights and title thereto and relinquished and conveyed the same to the UP; and made the latter the absolute owner thereof, subject only to the existing concession." — This passage articulates the ratio decidendi: the transfer of full ownership removed the land from the public domain and terminated the jurisdiction of the forestry and revenue bureaus, vesting in UP all rights of ownership.

• "However, it has the correlative duty and obligation to pay the forest charges, or royalties, to the new owner, the UP, at the same rate as provided for in the Agreement. The charges should not be paid anymore to the Republic of the Philippines through the Bureau of Internal Revenue because of the very nature of the transfer as aforestated." — This defines the concessionaire's continuing obligation after the transfer: the right to cut timber is preserved, but payment of charges shifts to UP as the new owner.

• "The grant under R.A. No. 3990 is transfer of absolute, full and entire ownership which leaves no room for a strict interpretation against the grantee, the UP. The reservation therein made is in favor of the private party pursuant to the license, which is nevertheless protected. It is the concession in favor of the petitioner which should, on the contrary, be bound by the rule." — This clarifies that the strict construction doctrine applies to the private concession, not to the government grantee receiving full ownership.

• Sarmiento, et al. vs. Caparas, et al., 4 SCRA 816 — Cited for the rule that declaratory relief cannot be joined with injunction; the Court found this rule inapplicable because petitioner had abandoned the objection by failing to raise it in the Stipulation of Facts.
• Delumen et al. vs. Republic, 94 Phil. 287 — Cited for the requisites of an action for declaratory relief.
• Tolentino vs. Board of Accountancy, 90 Phil. 83 — Cited alongside Delumen for the requisites of declaratory relief.

• Section 2, Republic Act No. 3990 — Cedes and transfers the parcel of public domain in full ownership to UP, subject to any existing concessions. Applied as the operative provision establishing UP's absolute ownership and the basis for terminating bureau jurisdiction over the area.
• Section 3, Republic Act No. 3990 — Exempts operations in the central experiment station from taxation and provides that incidental receipts or income therefrom shall pertain to UP's general fund. Applied to confirm that income from the ceded area, including forest charges as royalties, belongs to UP.
• Section 262, National Internal Revenue Code (Tax Code), as amended — Vests in the Bureau of Internal Revenue the duties incident to measuring forest products and collecting forest charges. Held to have lost applicability over the ceded area because the land was removed from the public domain.
• Section 816, Revised Administrative Code — Vests in the Bureau of Forestry the supervision and regulation of the use, cutting, and removal of forest products. Held to have lost applicability over the ceded area for the same reason.
• Republic Act No. 115 — Cited for the provision that the reforestation fee shall be collected by the Bureau of Forestry.
• Article 428, Civil Code of the Philippines — Provides that an owner has the right to enjoy and dispose of a thing without other limitations than those established by law. Applied to support UP's right to enjoy the fruits of its property, including forest charges as royalties.
• Article 441, Civil Code of the Philippines — Provides that to the owner belong the natural fruits, industrial fruits, and civil fruits. Applied to establish UP's entitlement to income from the ceded area, subject to the exception for the existing concession akin to a usufruct.
• Section 1, Rule 64, Rules of Court — Governs actions for declaratory relief. Applied to confirm the propriety of the action before the trial court.
• Section 5, Rule 10, Rules of Court — Authorizes amendment of pleadings to conform to evidence when issues not raised are tried by express or implied consent. Applied to treat the stipulated issues as effectively amending the pleadings.

Fernan, C.J., Gutierrez, Jr., Feliciano, and Bidin, JJ., concurred.